Insurer’s finance costs are expected to fall significantly from the refinancing as it will pay interest on a reducing balance.
Insurer UAP Holdings took a Sh2 billion loan from Stanbic Bank #ticker:CFC which it used to redeem its corporate bond on Monday, the Business Daily has established.
UAP had earlier said it would take a bank loan to retire the bond but did not disclose the identity of the institution lending it the cash.
Sources familiar with the insurer’s financing activities said Stanbic Bank funded the bond’s redemption.
“Stanbic Bank provided UAP with the entire amount,” a source said.
Stanbic’s chief executive Charles Mudiwa and UAP’s managing director Peter Mwangi had not responded to our queries by the time of going to press.
The insurer’s finance costs are expected to come down significantly from the refinancing as it will now pay interest on a reducing balance rather than on a fixed basis as was the case when the bond was outstanding.
Interest rates charged by commercial banks including Stanbic are currently capped at 13 percent, matching the rate at which the corporate bond was priced when it was issued in July 2014.
UAP issued the bond to finance its expansion and working capital requirements. The insurer also plans to take another bank loan to settle a Sh3.1 billion loan from South Africa-based Nedbank which falls due next year.
The Nedbank loan attracts an interest rate of three months London Inter-bank Offered Rate (Libor) currently at 2.3 percent plus a 3.5 percent premium.
Taking the Stanbic loan is part of UAP’s plan to restructure its debt. The insurer is also counting on its parent company Old Mutual to assist in the moves aimed at meeting creditors’ conditions and avoiding a squeeze on its cash flows.
Old Mutual, for instance, has agreed to extend the maturity of its short-term loans to UAP besides giving other creditors a higher claim on the insurer’s assets.
UAP is among a group of bond issuers that successfully repaid their debt in a market where defaults are becoming increasingly common.
Consolidated Bank, for instance, defaulted on its Sh1.6 billion bond on the same day that UAP repaid its bondholders.
The State-owned bank rescheduled the payment date to October 22 when it hopes to have received new capital from National Treasury – its majority shareholder with an 85.8 percent stake.
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